Atomic Corporation Is Enjoying a Very Profitable Year

question 1143

Multiple Choice

Atomic Corporation is enjoying a very profitable year. The board of directors is considering paying either a bonus to the president of the corporation or an extra dividend to the shareholder. Shinil is both the president and the 100% shareholder. Which of the following statements is generally correct with respect to closely held corporations in Atomic's position?

• A) The owner- manager will only be taxed on the bonus, not the dividend.
• B) For tax purposes, the corporation will prefer to pay the dividend.
• C) The corporation's taxable income will be impacted in the same manner by both the bonus and the dividend payments.
• D) For tax purposes, the corporation will prefer to pay the bonus.

---

Definitions:

Opportunity Cost

Opportunity cost is the value of the next best alternative foregone as a result of making a decision, representing the benefits an individual, investor, or business misses out on when choosing one alternative over another.

Allocatively Efficient

Allocatively Efficient means an economic state where resources are allocated in a way that maximizes the overall benefit to society, with goods and services distributed according to consumer preferences.

All Other Things Equal

A phrase used in economics, indicating that all other variables are held constant except the variables being studied.

Relevant Factors

Factors that significantly impact the analysis or outcome of a particular situation or model.